How To Get Private Funds In Real Estate Flip Transaction
If you are interested in purchasing Bank owned property or short sale homes , then you need to understand the basics of transactional funding and funding commitment letters and how they relate to your real estate interests and activities. Essentially, the transactional funding refers to the funds borrowed for a very short period to transfer a property from the current owner, to the transaction coordinator, then to the new owner. Proof of funds letters are used to help obtain financing and smooth the way for the real estate transactions you are involved in.
Transactional Funding
The use of private money allows the short sale process to take place smoothly. The basic premise for the loan is that once the original owner is ready to sell and the buyer is ready to take over the property (usually with a standard mortgage), there is a short term loan needed to facilitate the transfer period. This means that the transactional funding is a loan that exists fora day, before being recovered when the final property owner pays for the home.
The two separate transactions that place on the day of settlement create a unique situation known as a double closing. Private lenders like these loans as the lending period is typically just several hours. If the transactional funding lender ensures that all the other financing for the transfer of the property is in place, this makes this short term loan delivers a relatively low risk opportunity for a profitable outcome from the provision of the short term loan.
Private Investor Funding works not only for the short sale scenario described above. A savvy investor can structure the use of a short term loan to easily carry out purchases of bank owned properties, or any other real estate transaction that is based around a simultaneous closing.
Proof of Funds Letters
When purchasing property, the buyer must provide some form of evidence that they have the money to cover the property acquisition – this is where a funding commitment letter becomes useful. This document that the investor can use topoint out to the parties involved in a real estate transaction that you are able to purchase the real estate.
The proof of funds letters are used to demonstrate that investors have the financial resources or means to fund a real estate transaction. They indicate to the other parties that your funds are legitimate and can be used for the purchase of the property. This type of document is particularly useful if you are involved in short sale transactions and REO purchases that are structured with a double closing or when using transactional funding. They can also be used for other transactions that require documented proof of your financial resources.
POF Letter is generally provided as a bank, security or custody statement, stating that the investor or home buyer has funds for the real estate purchase that are obtainable and legitimate. Using this letter, the buyer/investor is able to secure any necessary additional funding or to assure the seller that they have the cash to fund the real estate purchase.
To achieve success in real estate investment, it pays to fully understand the different options available to you and how to use them to maximum advantage. Transactional funding and the use of proof of funds letters are two added ‘tools’ in your investment toolkit. Once you understand how these financial opportunities can be used to the best advantage, you’ll be on track to achieving financial security through real estate investing.
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